No Job And $50,000 In Student Debt. Now What?

I went to graduate school with a plan. I would duck out of the workforce for a year, use student loans to pay tuition and living expenses while I earned a master's in journalism, and then I'd land a (predictably low-paid) journalism day gig, while freelancing at night as an ad copywriter to pay off my student loans.

It was a pretty solid plan as far as freelancing goes. I am an experienced copywriter who had been juggling day and night jobs for years, working six to seven days a week, in addition to taking writing classes, language classes and a recreational ballet class to keep fitness in the mix.

I submitted my applications in December 2007. In retrospect this seems less than sane, but at the time it wasn't so illogical. After all, it wasn't until December 2008 - a full year after I put in my career-changing paperwork - that the solons at the National Bureau of Economic Research declared the recession had begun in December 2007.

Graduate student applications have risen sharply this year, as jobless Gen Ys have looked for a place to hide out (productively) during the recession. But that wasn't my motivation. I was going to graduate school because I wanted a career change and my efforts to break into journalism without that credential had been unsuccessful.

So, based on my past success juggling jobs, I filled out the FAFSA on-line form and took out a mix of student loans. I took out federally guaranteed subsidized and unsubsidized Stafford and Grad Plus loans, and, once Sallie Mae (NYSE:SLM) and Citigroup (NYSE:C) gave me the go-ahead, private loans, too. My loan total: just over $50,000, with the private portion carrying a stiff interest rate of 8.5%. (For background reading, see College Loans: Private Vs. Public.)

I borrowed more than the financial aid officials at my graduate school said it would cost to cover what I calculated was the true cost of opting out of a year of work and of changing careers. Here's what was included in my calculations, but not my school's:

1. Medical coverage and prescriptions: I opted to continue my medical insurance from my previous job for 18 months as provided by the federal law known as COBRA. I could have gotten cheaper insurance for the school year from the university, but sticking with COBRA meant I'd be insured for six months of care after graduating. That was, I believed, a prudent step.

4. I assumed in my budget that after I graduated it would take me three months to relocate to the New York City area and land a new job. I added these costs to my student loan borrowing, knowing that once I had graduated and was jobless I wouldn't be considered credit worthy enough to borrow more.

I received my acceptance letter in April 2008, just after the Federal Reserve helped JPMorgan Chase & Co. (NYSE:JPM) acquire Bear Stearns, but before Lehman Brothers (OTCBB:LEHMQ) went under and AIG (NYSE:AIG) and General Motors became wards of the state. Journalism was, as always, a little shaky. But print advertising hadn't yet fallen off a cliff and internet advertising for media sites seemed vibrant. Plus, this was something I felt I had to do. I needed change.

So loans in hand, I quit my job in August 2008 and headed West. It was still a few months before it would begin to feel like someone had pulled the plug on the economy and before the NBER confirmed that, yes, the economy was in a recession. By the time it was clear how bad things were, I was knee-deep in school. Dropping out would have meant perhaps never completing my journalism education. Staying in the graduate program and hoping for a turnaround seemed to make the most sense. Plus, I didn't know 142 newspapers would close in 2009 or that unemployment would top 10%.

School wrapped up August 2009 and in September 2009 I joined the ranks of the unemployed. Since I had voluntarily left, rather than lost my last job, and had most recently been a student, I qualified for no unemployment benefits. I got a few writing assignments and a part time internship (at Forbes), but was without prospects for a real job that would remotely enable me to chip away at my debt.

Instead of the hoped-for job offers, notices began arriving in the mail stating that my standard six-month student loan repayment deferral period would be ending in March 2010. At that point, I will owe $1,550 a month on my private loans and $321 a month on my collection of government guaranteed loans.

What comes next? Here, for the benefit of my fellow indebted graduates, is what I've found to be my options:

1. Private and government loans can be deferred beyond the initial six-month period after graduation for financial hardship or if a student is still in school, unemployed or collecting disability. During this period interest will continue to accrue on most of my loans, except for those that are federally subsidized as well as guaranteed. For those loans, the government will eat the interest costs.

2. If I don't qualify for deferral, I can apply for forbearance, which is like deferral, but up to the discretion of the lender, explains Jevita Rogers, director of the Office of Student Financial Aid at Virginia's George Mason University. (So, for example, if am working part-time or in a very low-paid job, I might have to end up applying for forbearance.) The maximum period for deferral and forbearance combined is 36 months - after you stop being a student.

3. I can become a professional student, take out even more loans and face things in oh, say, 2020. While I am a student, all my unsubsidized loans will continue to accrue interest.

4. I can do a year in AmeriCorps and will qualify at the end of my stint (of 10 months to a year) for a $5,350 stipend to go to school, or in my case, repay loans. But while I am serving, most of my loans will continue to accrue interest. The military sometimes forgives debt for certain in-demand professionals who sign up, points out Mark Kantrowitz, founder of Finaid.org. In-demand means nurses and doctors, not journalists.

5. I can opt for the new income-based repayment plan for my government guaranteed loans. If I take a private sector job I will pay 15% of my income over 150% of the poverty line, for 25 years. If I take a government job, I'll only have to pay for 10 years. But I'm not looking to work for the government and my private loans - the bulk of my borrowing - aren't eligible for income-based repayment anyway.

6. I can ignore my mail and my lenders. Ruth Hoch, associate director of Financial Aid at George Washington University, urges against this option. "Get in touch with the lender," Hoch warns, since you don't want to end up in default. Bankruptcy? Don't even think about it. The current laws make it difficult to get relieved of student debt.

7. I can use what's left of my savings and seek out an 80-plus year-old Midwestern couple and have them buy Lotto tickets for me, since that demographic always seems to win. (But I'll need to get my deal with them in writing, lest I be the victim of a granny-grandpa-double-cross, motivated by their own understandable desire to help their own grandkids pay off their loans.)

8. I could get lucky and have my initial plan - journalism and copywriting - become viable once again and begin paying down my debt.

Let me add that keeping on top of all these options, while obviously easier than paying off the debt, is no mean feat. Being a responsible citizen, after Sallie Mae sent me a notice saying my loans had been put into deferment through 2011 - without any action on my part - I called to investigate. Was this good news true? I got an unequivocal "yes." One week later, Sallie Mae sent an e-mail saying my first payment was still due in March 2010.

How exactly did my status change in the matter of a week? According to Sallie Mae: The company had suddenly received notice that I'd graduated in August.So now I'm filing for a deferral-for-cause (un- or under-employment) and buying myself time while the interest grows.